Lonmin Selling Excess Platinum Capacity to Build Capital

Platinum miner Lonmin (LSE:LMI) said on Monday (August 7) that it plans to raise capital by selling 500,000 ounces per year of its platinum processing capacity.
The company, currently the world’s third-largest platinum producer, saw its share price rise 1.7 percent on the news, though it is down 35 percent year-to-date.
Lonmin has not specified which operators may be interested in buying its platinum processing capacity, but said the move will allow other South African producers that sell concentrate to offer more highly processed platinum; in doing so they will be able to command greater profit margins.

The move is part of Lonmin’s recently announced plan to raise cash and lower costs in the face of uncertainty in South Africa, where it operates. Along with other platinum miners in the country it is facing obstacles such as currency issues, political instability, labor disputes and deep platinum seams.
The firm is also searching for third-party funding in order to cut the amount of capex required to finance the development of the K4 shaft at its Rowland mine. The work will be aimed at extending the life of the mine. Additionally, Lonmin is looking to reduce overheads by at least $37 million in the next year.
Despite challenges, Lonmin’s latest quarterly results indicate that mine production was up 3.8 percent year-on-year, at 2.7 million tonnes. The firm said platinum sales increased by 10.8 percent from the same period a year earlier, and noted that it is maintaining its full-year sales guidance of 650,000 to 680,000 ounces. That said, the miner also reported that its costs rose 6.4 percent during the period.

Lonmin among struggling South African platinum producers

As mentioned, Lonmin is not the only South African platinum producer facing problems. In late July, Anglo American Platinum (OTCMKTS:ANGPY), the world’s number-one platinum-group metals miner, posted a 55-percent drop in first-half profits.
The firm is 80-percent owned by Anglo American (LSE:AAL), and its single loss-making asset is the Amandelbult mine. Its share price fell by 3 percent on the news, and CEO Chris Griffith said the company is looking to reduce mine costs by 25 percent over the next few years.
Additionally, in late July, Atlatsa Resources (TSX:ATL) said it would place the Bokoni mine on care and maintenance. The site hosts one of the largest platinum reserves in South Africa, and is a joint venture with Anglo American Platinum. The partners made the decision as part of a debt-cancellation and financial restructuring plan.
They said, “given Bokoni’s current operational challenges, continued operational losses and negative cash generation, the depressed PGM environment, the negative medium term PGM pricing outlook and Atlatsa Group’s significant debt levels, attempts to implement such alternatives have proven unsuccessful.”
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.